Business Interview: ‘US shale output would continue to impact oil and gas prices’

By
Deepak Sharma

May 13, 2019

Muscat -

Global energy giant BP’s group chief economist Spencer Dale was recently on a visit to Oman. During his visit to the sultanate, Dale presented ‘BP Energy Outlook’ where he made a presentation on probable demand for fossil fuels in next 20 years. In an interaction with media-persons in Muscat, Dale talked about wide ranging issues in global energy markets.

Going forward, he said natural gas is going to become the preferred fuel for industrial activities in the world. Dale noted that the US shale oil and gas revolution will continue to be a key factor in driving the future prices.

In your presentation, you spoke about a shift happening from oil to natural gas in global energy markets. But still you are not expecting a significant increase in natural gas prices, can you elaborate on this?

The whole natural gas segment is passing through a sea of change, many things are happening simultaneously. The demand for natural gas is increasing, and on the supply side the gas market is growing with the higher demand for liquefied natural gas (LNG). At the same time, the production is also increasing globally, particularly driven by Qatar, the US, Russia and other parts of the world.

The global gas market has become far more competitive. Earlier, production was the only constraint but now pricing has also become a factor, your gas needs to be competitive enough to be sold in the global market. In the current situation, consumers are the real winners as it means accessibility to the competitive gas pricing. I don’t expect any significant increase in the prices of natural gas in near future. Gas prices in the Asian market have come down relatively to the past as the market has become much more competitive.

Most of the countries in the Middle East have announced that going forward, all power sector investments will solely be in renewable segment. But still you are not expecting any decline in demand for natural gas in the region?

Despite a rush for renewables, I don’t expect overall demand for natural gas in the Middle East region to go down in the near future. What would be interesting to note is that the carbon intensity – how much carbon is being produced for per unit of GDP – is likely to go down. As electricity generation will be driven by renewable resources, the energy intensity per unit of GDP will be still high, but going forward, overall carbon intensity will decline.

As per my knowledge, the first commercial solar power project is about to get auctioned. There is lot of excitement and enthusiasm here about the solar energy and I think renewable energy - both solar and wind - is attractive here as the region is blessed with the natural conditions.

So, if the authorities are focusing more on renewable energy, it will divert some gas from power sector to other usages and that will allow some additional earnings to the Middle East.

You are also indicating, hypothetically, there is a possibility of cuts in investments in hydrocarbons but it will not be enough to push prices up?

The story, which I showed to everyone here is about how certain developments could lead to lower oil demand in the future. And there was a hypothetical example that ‘if the world cuts investments in hydrocarbons, there won’t be much impact’. Investments in hydrocarbons sector are still low compared to the period before 2014, but personally I am not worried about the level of investments going on in the exploration and production of oil and gas. The biggest reason for this confidence is that the US tight gas production is still very attractive and is compensating for decline in investments in other parts of the world, and that means oil supplies will continue to grow. Another big reason is that the OPEC members have taken supplies off the market as there is too much of supply in the market. There is enough supply in the market and I am not worried about the level of investments.

If supplies are not going to be a problem and demand is also likely to reach peak levels in near future, then we can draw a conclusion that there is no possibility of oil prices breaching US$100 per barrel in future.

I have no idea where oil prices will be in near future. I think over the next five years or so, the US tight gas and oil will play a major role in terms of being the major source of supplies for the global oil market. In terms of a natural attractor for the oil prices, I think it would be price at which the US tight oil needs to continue to grow. In such circumstances, it is difficult for me to guess the price outlook for crude oil in the near future.

You anticipated that the gas would be a primary source of energy, globally. What about coal, what are your views on clean coal technologies or super critical technologies?

I prefer to call those super critical technologies or clean coal, as washed coal. In India this is called as washed coal and that language is better as essentially they are washing the ash out of coal. And one more thing, these super critical emissions are not about carbon emissions, they are talking only about other pollutants (suspended air particles). So, these super critical technologies are not helpful in reducing carbon emissions. Clean coal technology can be used to improve local air quality but it cannot be used for tackling the rise in carbon emissions.

Why do you expect India to drive global gas demand whereas the Indian government is working towards cutting dependence on hydrocarbons by investing more on renewable energy?

There is an evolving transition scenario in India. India’s energy demand will provide for the largest increase in demand for hydrocarbons in the next 20 years. India will be the largest growth market for coal, and for oil also for the next 20 years. What we know from the system is that if a country size of India continues to grow for the next 20 years, it will need huge amount of energy to fuel its growth engine. It can grow renewable energy very rapidly, some of the amazing auctions related to solar energy have happened in India. Alongside that, India’s demand for power generation is likely to grow very rapidly.

In conclusion, if the Indian government wishes to electrify the country, it would need all types of fuel in future. As the number of people in India driving cars and motor bikes continue to rise, the demand for oil and gas will continue to rise in near future also.